Next Stop: 13,500

The stock market is going to make a 1990s-ish run next year (for reasons I dread). Especially certain stocks (for which I wish it were not so).

I see myself as a young guy, so it's shocking to me that this month marks 15 years that I've been getting paid to write about money. When I began writing a column for Worth magazine in late 1995, if you needed to know a company's price/earnings ratio or year-over-year sales, you had to go to these shelves that were updated with these expensive subscription leaflets we'd receive every two weeks, which were placed in these giant binders by — I kid you not — a full-time librarian.

By the time I left for Esquire a year later, there was no librarian and every reporter had a thousand times more information at his fingertips — for free — than those binders could ever contain. It was obvious that the American economy was about to experience a once-in-a-lifetime productivity overhaul that could only result in massive new profitability for companies that harnessed it. I got rich (sort of) betting on that sure thing, both by covering it but also by investing in it.

I've always felt the yoke of responsibility for my words. It is a fact of this business that when you're wrong, you not only get ridiculed (which I welcome) but you might also cost some nice old guy you'll never meet his life savings (which I dread). I wouldn't have this job if I weren't right more than wrong, and sometimes you get mocked even when you're right — one blog called me "spectacularly silly" for recommending gold a year ago, when it was $300 cheaper than it is today. But I've suffered over the times when my bad advice (selling Apple, goddammit) might have hurt someone's 401(k).

This is a long-winded and elegiac way of getting to my point. Which is that I think the markets are about to make a run similar to the one we saw in the late 1990s. I believe it's smooth sailing till at least Dow 13,500 or so. And I believe we're going to experience a 2011 that will look very good for stocks.

But whereas I was giddy in 1996, I am less sanguine now because of the reason I think stocks are going to soar. It's not a leap in productivity catalyzed by American ingenuity and the invention of an entirely new framework for distributing information. Nope, this time it's more that we've so undermined our currency and so dramatically debt-leveraged our future that assets priced in dollars have nowhere to go but up. Not quite as gratifying as "we invented the Internet." But look at it this way:

Everything I've been fretting over for the past two years — inflation, the price of gold — is good for many stocks. After all, what is inflation? It means that each dollar is worth less. So it now costs 1,300 of them to buy the same ounce of gold that was recently had for 650. By the same token, the share of GE that you could buy or $14 in June now will cost you $16. Is that because GE is a better company whose future is more promising today than in June? Maybe. But another way of saying it is that each dollar is now worth only 1/16 share of GE compared with 1/14 share in early summer.

The year started with a historic rise in corporate profits. And they've only improved, as companies remain timid about hiring in a politically unstable environment. Instead, they're hoarding cash. Some industries — particularly banking and insurance — are doing so with the double whammy of still-low stock prices and a federal government that seems determined to consider anyone with two branches and an ATM "too big to fail," bailing them out of positions they never should have held at 100 cents on the dollar.

At $150, Goldman Sachs has a PE under 8 — about 60 percent of that of the financial-services industry as a whole — despite an expected growth rate of more than 7 percent a year. Morgan Stanley is even cheaper, by all measures — a price to sales of only $1.20 and a price to book of less than a dollar, despite its slightly better projected long-term EPS growth.

It's painful to recommend these stocks. Michael Lewis is spot-on when he describes the ruinous effects on America's economy that occurred when investment banks devolved from their original role — providing real businesses with access to capital — into giant casinos that added no value and bet on propositions in which they had no stake.

So I will end this Proustian remembrance of columns past where I began: I don't see it as my job to judge the social utility of the investments I advise. I own neither of the companies mentioned above, and never have. But the colossal amount of financial-engineering know-how concentrated in those two firms — and the pummeling they've taken in the marketplace — makes them well positioned to benefit from the coming bull run.

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